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Why Sprint's Shares Fell 16% Last Month

By Anders Bylund - Feb 10, 2020 at 3:02PM

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The T-Mobile merger looks like a coin toss that Sprint desperately needs to win. That's gambling, not investing.

What happened

Shares of veteran telecom Sprint (S) fell 16.1% in January 2020, according to data from S&P Global Market Intelligence. The stock was already trending lower due to the uncertain future of Sprint's proposed merger with T-Mobile US (TMUS -0.53%) when the company presented a mixed third-quarter earnings report.

So what

The T-Mobile/Sprint deal has been stuck in legal limbo since 2018. The two companies stated their case for this deal to District Judge Victor Marrero near the middle of January, and Sprint's stock took another haircut as several analysts placed the probability of a favorable outcome at 50% or less. Judge Marrero pledged to deliver his verdict "as quickly as possible," but the court has yet to deliver a final statement.

In the third-quarter report, Sprint showed a smaller net loss than expected although revenue came in 2% below analyst estimates.

A red arrow crashes down through the floor in front of a young man, who calmly leans forward to watch the impact.

Image source: Getty Images.

Now what

I've said it before and I'll say it again: Sprint needs T-Mobile a lot more than T-Mobile needs Sprint. This company is falling apart but T-Mobile keeps delivering strong results on its own. Sprint's stock is valued below the company's book value, which is a situation normally reserved for companies on the verge of bankruptcy. These shares are also trading 35% below the T-Mobile deal's proposed buyout price of roughly $8 per share. So you could buy Sprint stock today if you're betting that the honorable judge will give the merger a final stamp of approval, but that's really the only reason to touch this risky ticker nowadays. It's gambling, not investing, and true investors are better off finding top-quality stock ideas elsewhere.

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Stocks Mentioned

Sprint Corporation Stock Quote
Sprint Corporation
T-Mobile US, Inc. Stock Quote
T-Mobile US, Inc.
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